Post-APM blues: Budget may have to bear extra burden of Rs 14,000cr

Anupama Airy

New Delhi, Jan 7: The finance ministry may have to make an additional provision of about Rs 14,000 crore in the next Budget for meeting expenditure on various accounts, including Rs 12,000 crore for subsidy on kerosene and LPG, in the first year after dismantling of the administered price mechanism.

Senior government officials said the proposal on additional budgetary provisions for the next fiscal was part of the Cabinet note being prepared by the petroleum ministry on various issues relating to the decontrol of the oil sector from April.

Giving the details of these outgo, sources said under-recoveries of the oil marketing companies on account of sales tax payment on aviation turbine fuel, which is currently being made from the oil pool account, would have to be met from the Budget in the post-APM era. “These under-recoveries are around Rs 20 crore per month and a provision of Rs 240 crore needs to be made on this account in the next Budget,” sources said.

The under-recoveries are on account of the bilateral air service agreements entered into by the government with other countries, which provides for exemption from payment of taxes and duties on fuel and lubricants supplied in the country to foreign aircraft.

While the civil aviation ministry is contemplating an enactment through the proposed Aircraft Bill of 2000, to exempt from all duties and lubricants uplifted by a foreign aircraft and operating international services to, from and through India.

“Till this enactment comes into force, these under-recoveries have to be met from the Budget,” officials said.

Moreover, as it has been recently decided to continue with the subsidies on kerosene and LPG in the post-APM period, the petroleum ministry has worked out a requirement of Rs 12,000 crore from the Budget for the 2002-03 fiscal.

Although the exact budgetary requirement for meeting the subsidy on kerosene and LPG would depend on the international crude prices, exchange rate, duty structure and level of subsidies, the ministry has worked out two scenarios for calculating the annual subsidy burden.

Under the first scenario, the estimated annual subsidy at the existing retail prices and tariff rates and at an average international crude price of $20 a barrel and exchange rate of Rs 48 per dollar would be Rs 4,230 crore for PDS kerosene and Rs 4,490 crore for domestic LPG.
In the second scenario, at an international crude price of $25 a barrel and with all other parameters remaining the same, the annual subsidy worked out to be Rs 6,630 crore for kerosene and Rs 6,690 for LPG, sources said, adding a provision of another Rs 1,000 crore needed to be made to meet the freight subsidies for far-flung areas. This subsidy is required to contain the impact of freight in the retail selling prices in far-flung areas.

“The extra cost incurred in supplying a LPG cylinder from Delhi to Leh is around Rs 142 a cylinder and that of kerosene is Rs 3.30 per litre. This cost varies for other locations and after taking into account supply of retail products in these areas, an additional freight subsidy of Rs 1,000 crore has been worked out,” sources said.

Expenditure on setting up a petroleum regulatory board post-APM has been worked out at Rs 10 crore while another Rs 11.25 crore would be needed for anti-adulteration cell, which was currently being met by the oil co-ordination committee.

Besides these provisions, certain necessary allocations were also required to be made in the Budget for meeting the liabilities on the oil pool account pertaining to the APM period but arising after April 1.
This, would however, be decided by the finance ministry, sources said.